Turning Surviving Into Thriving

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					Growth in Lending

       Antonio Pizano, CEO
  Pacoima Development FCU
“There are three types of baseball players:

  Those who make it happen,
     Those who watch it happen, and
         Those who wonder what happened.”

                           -Tommy Lasorda
There are three types of CREDIT

 Those that MAKE IT HAPPEN,
   Those that watch it happen, and
      Those that wonder what happened.

                        -Tommy Lasorda
                         (with a little “CU-twist)
    Pacoima Development FCU
PDFCU was established in 2005 with 2 main
  • Provide a fair & affordable alternative to
     predatory payday lenders & check cashers
     to consumers, and
  • Provide additional source of financing for
     small businesses
  Pacoima Development FCU
As of 9/30/11, PDFCU had:
  • Nearly $4MM in Assets
  • 839 Members
  • 2.75 FTE
  • 48% Loan-to-Asset
  • 50% of loan volume is MBL’s (Nearly $1MM)
     • Average SBA guarantee is 85% (or $850M)
     • Net Exposure to PDFCU is $150M
     • …BUT, earning interest on the full $1MM
What do WE need? What do our MEMBERS
 need? What does our ECONOMY need?
WE need:
  • Increased ROA/decent returns
  • Loan growth/diversification
  • Loan risk mitigation
  • Maintain/Preserve liquidity
  • Manage/mitigate IRR (Interest Rate Risk)
What do WE need? What do our MEMBERS
 need? What does our ECONOMY need?
Our MEMBERS need:
  • Access to Capital/Alternative Financing Options
   • Other Merchant Services
   • Real “Customer… scratch that, Member Service”
   • Alternatives to their existing bank (NOW, more than ever!)

Our ECONOMY needs:
   • JOBS, JOBS, JOBS, JOBS…. Job Creation/Job Retention
   • Small Businesses make up over 65% of all U.S. Jobs!!!
•   National Unemployment Rate at 9.1%

• NEVADA Unemployment Rate at 13.4% (Highest in
the U.S.)

• CALIFORNIA Unemployment Rate at 11.9% (2nd
Highest in the U.S.)

• L.A. County Unemployment Rate at 12.2% (Not
including “under”-employed)
   What are the “BANKS” doing about it?
                  …NOT MUCH!!!
        … and they may be making the problem worse…
• Small business lending down significantly
• Business LOC’s not being renewed or termed out… MUST payoff
• Term loans maturing w/ balloon payment due… bank not willing
to refinance
• Banks not interested in loans under ≤ $500,000
• Discontinued lending to certain industries
• Increasing fees
     Why Member Business Loans …
        Why SBA 7(a) Loans???
This type of loan program provides most, or all, of
what WE NEED:

Increased ROA/Decent returns:
   • Lender may charge up to 2.75% over WSJ Prime Rate
   (Currently 6% total)
   • This is similar to most auto loan rates and MUCH better
   than most investment returns
     Why Member Business Loans …
        Why SBA 7(a) Loans???
Loan Growth/Diversification:
   • Most credit unions do NOT current offer MBL’s or MBL’s
       using SBA 7(a) program
   • Increased demand for small business lending… Banks not
       doing enough
Loan Risk Mitigation:
   • Small Business Administration provides 75% - 85% guarantee
      • This is a payment guarantee, NOT a deficiency guarantee
   • SBA resources that provide technical assistance support
      (i.e., SBDC, WBC, SCORE, etc…)
     Why Member Business Loans …
        Why SBA 7(a) Loans???
Maintain/Preserve Liquidity:
   • Guaranteed portion of loans may be sold in the secondary
       market, at a premium
   • Guaranteed portion of loan DOES NOT count against MBL
       Aggregate Limit Rule
Mitigate Interest Rate Risk (IRR):
   • SBA loans have variable rate feature (can adjust quarterly,
       semi-annually, annually)
   • Relative short term loans (average maturity is 7 years; fully
       amortized or balloon)
   • Monthly payments must be re-amortized at least once
       annually over remaining term
          MBL Aggregate Limit Rule
NCUA R & R - Section 723.16(a):
   • “The aggregate limit on a credit union’s net member business
       loan balances is the lesser of 1.75 times the credit union’s net
       worth or 12.25% of the credit union’s total assets.”
MBL’s withOUT an SBA Guarantee…
   • For Example, a $35MM credit union would be held to an MBL
   limit of $4.287M
   • Annual Interest Income = $257,250 (assuming 6% per annum)
   • Small Businesses Assisted = 17 (assuming average loan of $250,000)
   • Jobs Created or Retained = 85 (assuming 1 job per each $50,000)
   • No loan guarantee
   • Increased criticism by examiners
   • Less likelihood of any recovery in the event of default
          NO LIMITS HERE!!! (kinda’)
 When using a GOVERNMENT-GUARANTEED loan product, ONLY the UN-
 guaranteed portion of the loan counts against the MBL Aggregate Limit Rule.
  $35MM “XYZ Credit Union” WITH an SBA 7(a) Loan Program
• Same aggregate limit of $4,287M – BUT, applies to unguaranteed balances ONLY
   • New lending capacity: $21,000,000        (* Average of 80% guarantee)
   • Annual Interest Income: $ 1,260,000      (Assuming 6% per annum)
   • * Annual Guarantee Fee: $      92,400    (On Guaranteed portion only)
   • CU Gross Income:         $ 1,167,600
   Although 75% - 85% of the loan is guaranteed, “XYZ Credit Union” earns
   interest on the FULL loan amount. Additionally…
       • Small Business Assisted:    84         ($250,000 average loan amount)
       • Jobs Created or Retained:   420        (1 job for each $50,000)
       • Likelihood of recovery becomes “less relevant”

                                      • THIS IS A “PAYMENT” GUARANTEE
Payment Guarantee


Deficiency Guarantee
         SBA Servicing Requirements
… YES, there are several conditions BOTH the lender & borrower
MUST meet… here’s a few:

  • Payment of Guarantee Fee (Can be passed down to the
  • Payment of SBA Ongoing Servicing Fee (Must be paid monthly)
  • Submission of 1502 Reports (Monthly)
  • Notify SBA of any “material” changes to loan or delinquencies
  • Obtain SBA approval of any modification requests, as deemed
                           •        Yes… there’s more…
          SBA Servicing Requirements
  • Quarterly submission of financial statements (self prepared ok)
   • Annual submission of Corporate & Business Tax Returns
      • OR, CPA prepared financial statements
   • Expected to meet other loan covenants, such as ratio
   requirements, etc…
   • Other requirements as stated on the Note/Loan Agreement
           MAKE IT HAPPEN!!!
    • Think “Outside the Box”
    • Be Innovative
    • We can’t keep doing the same old thing & expect different results
• WE want a decent return while increasing deposits and
minimizing risk
• Our MEMBERS are looking for alternative loan products &

                             •       It’s a WIN… WIN… WIN!!!
So, are YOU going to…
or will you be left to WONDER

         THANK YOU!!!
Growth in Lending

       Antonio Pizano, CEO
  Pacoima Development FCU

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